Iam having a business... my question is that everyear I purchase capital goods for my business...so how do i show in my balancesheet? My accountant adds the value of purchased capital goods in the heading he has made in balancesheet... like he has made block tools and equipment and he adds the value of capital goods such as machinery tools etc in that block and carry forward the value of block next year.. he didn’t show the list of each and every capital goods item purchased in balancesheet instead he adds the values in the particular block... My question is that he doesn’t maintain list of capital goods .. he is just having values of blocks he made with his own wish like tools and equipment, refirgiration etc... is he doing correct? Or we have to show each and every item name in balancesheet? Bcz if scrutiny comes iam just having the values of blocks in balancesheet and not names and list of capital goods,, Is this way he is doing right as in next financial year he only carries opening value of block not the list of item present in that particular block... So whats the way to main this in balancesheet?
Hi
As per the income tax act, depreciation is allowed on block of assets. This approach is correct from income tax perspective.
However, when accounts are made, detailed asset register should be maintained. Suggest your accountant to create group of fixed assets in tally under which separate individual assets are maintained.
Hello,
This block of assets system is followed for the income tax act. Block of assets is a group of assets falling within a class of assets.
In the books of accounts, each fixed asset should be mentioned separately and while groups of fixed assets of a similar class can be made such as Plant & Machinery, Buildings, Furniture, etc.
I hope that this answer satisfies your requirement.
Regards,
CA Hunny Badlani
Dear Sir,
Hope you are doing well !!
It is not a correct approach as he needs to maintain item wise details in block of assets.
Block of assets means group of assets falling within a class of assets for which same rate of depreciation is prescribed.
Suppose in a block say plant and machinery.. there r 2 similar item purchsed on same date and the wdv of two item after 4 years is 10000 each .. so block value is 20000 Now i sold on item at 15000... so how should i show..? Reduce block value to 5000 and don’t pay shorterm capital gain or in other method reduce boock value toh 10000 and pay capital gain tax on 5000 Whats the correct procedure? Because of we reduce the value of block to 5000 .. then the calue of single item left would be 5000 but in actual is 10 thousand after depriciation.. to what should have to do
Under the block of assets system, if any part of such capital asset forming part of a block of asset is sold, then the net consideration received is deducted from the WDV of the block. and if after deducting the net consideration, the WDV of the block comes to NIL then the gain arising shall be treated as short term capital gain.
In your example, WDV after deducting the net consideration(Rs. 15,000) from the block will be Rs. 5,000. And no STCG would be applicable.
Yes as per income tax block system is followed so he is doing the correct thing.
In scrutiny generally they dont ask to explain opening WDV and any ways in books you must maintain asset wise ledger.
In books there is a profit of 5000 but in income tax WDV would be reduced to 5000 and no gain would be recorded in your return of income and depreciation would be calculated on ₹5000 for income tax and on 10000 for books of accounts.
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Thank you.
How to show it in my balancesheet.? Do i have to show profit of 5000 in profit and loss account or shoud in decrase the value of second machine by 5000? In my accounting how to show it
The first method is correct. Since block of assets would still exist after sale of 1 asset, no capital gain/loss would occur.
In books, there should be separate accounts prepared for each head under group of assets.
The profit and loss statement as per books would show a profit/loss on sale of asset, whereas the income tax computation would adjust the same and show depreciation on net block of asset. There would be no profit/loss on sale of asset as per income tax.
Show it as profit in profit and loss account because in books of accounts we don't follow block concept.
Books would be showing a profit of Rs. 5,000 on sale of fixed asset while in the computation of income tax, it would be adjusted as depreciation on the block.
Hi,
The first approach is correct.
In books, show the profit of Rs 5000 in P&L account.
In income tax computation, reduce the same from WDV.
If you need any further assistance, please let us know.